Martin Weale’s speech today shows how far the policy debate has shifted at the Bank of England. As recently as early July, this external member of the monetary policy committee was voting for higher interest rates. Now he is openly talking about restarting quantitative easing.
Mr Weale should certainly be praised for being as good as his words. In March he said he was perfectly happy to change his mind if the facts changed and he has done so. No longer voting for a rate rise does not indicate a previous error of judgment, only that circumstances have changed.
From his speech today, Mr Weale, one of the more hawkish MPC members, now clearly thinks that UK QE2 might be necessary and he believes it would work.
Maybe the eurozone debt crisis has had an unexpected, beneficial side-effect – getting the Germans to go shopping? German consumers’ propensity to spend saw a surprise rise this month, according to GfK, the Nuremberg-based research organisation. At 36.2 points, its “willingness to buy” indicator is at the highest since February and way above its long-term average.
The escalating debt crisis could provide an explanation, GfK argued. “Many Germans fear for the stability of their currency and are therefore more likely to spend their money on high-value purchases than to save for a rainy day,” it noted. If so, this would be good news for the rest of Europe, helping boost domestic demand at a time when economic growth is stalling.